Section 14A disallowance, stock verification, depreciation and capital gains computation were examined on evidence and exempt income principles.

Section 14A disallowance depends on the existence of exempt income, and where the record does not clearly establish such income, factual verification by the Assessing Officer is required. Opening stock additions may also need reassessment to ensure the same difference is not taxed twice. On the evidence recorded, partial disallowance of unsupported site and medical expenses was sustained as a reasonable estimate, depreciation on the disputed property was denied for want of proof of business use, and the capital gains computation on sale of land and building was upheld on a reasonable apportionment basis.

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Issues: (i) Whether disallowance under section 14A was sustainable in the absence of ascertainment of exempt income; (ii) whether the addition on account of opening stock required verification to exclude double taxation of the same difference; (iii) whether the disallowance of site expenses was to be interfered with; (iv) whether depreciation on the disputed property was allowable; (v) whether the restricted disallowance of medical expenses and the computation of long term capital gain on sale of land and building were correct.

Issue (i): Whether disallowance under section 14A was sustainable in the absence of ascertainment of exempt income.

Analysis: The record did not clearly show whether any exempt income had been earned during the relevant year. The applicable principle is that disallowance under section 14A cannot be made where no exempt income exists, and the matter therefore required factual verification by the Assessing Officer.

Conclusion: The issue was restored to the Assessing Officer for verification and was allowed for statistical purposes.

Issue (ii): Whether the addition on account of opening stock required verification to exclude double taxation of the same difference.

Analysis: The claim was that the same stock difference had already been considered in an earlier assessment year, and this required examination from the assessment records to determine whether the assessee had already suffered tax on the very difference.

Conclusion: The issue was remitted to the Assessing Officer for verification and was allowed for statistical purposes.

Issue (iii): Whether the disallowance of site expenses was to be interfered with.

Analysis: The expenditure was partly unsupported by bills and vouchers, and the restriction made by the first appellate authority was found to be a reasonable estimate based on the material on record.

Conclusion: The disallowance was upheld and the assessee's ground was dismissed.

Issue (iv): Whether depreciation on the disputed property was allowable.

Analysis: The property was shown to have been acquired in the succeeding year and the materials did not establish use for business purposes during the relevant year. In the absence of contrary evidence, the finding denying depreciation was sustained.

Conclusion: The disallowance of depreciation was upheld and the assessee's ground was dismissed.

Issue (v): Whether the restricted disallowance of medical expenses and the computation of long term capital gain on sale of land and building were correct.

Analysis: The medical expenses were not fully supported by break-up details or vouchers, so partial disallowance was justified. For capital gains, the written down value was properly apportioned between land and building on a reasonable basis, and the computation adopted by the first appellate authority was upheld.

Conclusion: The restricted disallowance of medical expenses was sustained and the revenue's challenge to the capital gains computation failed.

Final Conclusion: The assessee obtained only limited relief by way of remand on two grounds, while the remaining additions and disallowances were sustained, and the revenue's appeals were rejected.

Ratio Decidendi: Disallowance under section 14A requires the existence of exempt income, and where factual verification is needed, the matter may be restored to the Assessing Officer; partial disallowances based on unsupported expenditure and reasonable apportionment of value can be sustained on the evidence on record.

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